The main objective of the protocol is to incentivize quality and precise pricing estimates. Two tokens are developed to handle compensation and signal reputation for users effectively.
LITH is the primary economics token of the Lithium ecosystem. Compensations or rewards are denominated in LITH. For any given precision level of a pricing estimate, claims by a Price Expert on the relevant reward pool for that specific precision level are also based on his relative stake among all Price Experts in that precision level.
- Bounty: reward pools posted by Price Seekers are denominated in LITH to compensate Price Experts for submitting pricing estimates.
- Reward allocation: Our Reward Mechanism compensates Price Experts based their relative stake as boosted by precision level of their pricing estimates. Higher number of boosters are allocated to the group of Price Experts with estimates closest to the mean. Although stake in LITH together with precision level determine the economics among Price Experts, the amount of LITH staked will not determine output price estimate. LITH alone carries no weight towards any pricing estimate submitted by a Price Expert. The weight or influence of any pricing estimate is solely based on the number of Reputation Tokens staked towards a submission.
Reputation ("RP") is a form of signaling that aims to identify and reward the users that have contributed value to the platform. It is a non-transferable metric that can only be earned by ecosystem participation.
RP held by a Price Expert signals their reputational capital. It is also used as the weighting factor for pricing estimates submitted by a Price Expert.
- Reputation must be earned: RP is an added incentive and enhancement to the precision of pricing over time. Initially, a Price Expert will have zero RP. As performance improves, Price Experts will receive more RP and a corresponding increased influence in setting the market price.
- Weight price estimates: Price Experts can stake reputation denominated in RP along with their bid and ask price estimates. The more RP staked, the larger the hypothetical order size submitted by a Price Expert, and the more market clearing power a price estimate submission commands. Similarly, as a Price Expert's pricing performance deteriorates, the RP will be reduced and given less market influence. The RP does not directly affect the protocol economics, which is determined solely by the precision of a pricing estimates and the associated LITH staked.
- Sector specific: The RP will be categorized into (a) general RP and certain (b) asset class and sector specific RPs, such as RP - NFTs, RP - Equities (Tech), or RP - Debt (Industrials).
- Moderates: Since reputation determines the weight in price estimates inputs, high reputation Price Experts together are the de facto price-setting market leaders that moderate noises for the protocol. Users having achieved higher reputation will progress to become part of the market leader community. In the future, LITH token holders will also be able to propose and/or vote to invite Price Experts to join and contribute to the protocol by offering them certain initial RP .
Price Experts are not allowed to stake any RP until their RP balance reaches and maintains above a certain threshold ("RP Threshold"). Any Price Expert, with or without RP, is entitled to stake LITH and participate in pricing enquires, subject to the following staking limits ("Staking Limits"):
- Base LITH Staking Limit All Price Experts, including Price Expert without any RP, are entitled to stake up to a certain number of LITH. Price Experts submitting price estimates without staking any RP are entitled to the same reward and are not subject to any financial disadvantage. Price Experts without any RPs are typically new users in the ecosystem. These new users will be entitled to the same proportionate rewards in accordance with the Reward Mechanism. Their pricing estimates, however, will carry no weight and have no impact on the output.
- LITH Staking Limit The maximum number of LITH a Price Expert is entitled to stake is limited to a certain multiple of the RP he stakes in a specific pricing enquiry.
- Base RP Staking Limit All Price Experts are entitled to stake up to a certain number of RP regardless of the number of LITH he stakes in a specific pricing enquiry.
- RP Staking Limit The maximum number of RP (general RP and sector specific RP) a Price Expert is entitled to stake is limited to a certain multiple of the LITH he stakes in a specific pricing enquiry.
- Generic RP Staking Limit The maximum number of general RP that a Price Expert is entitled to stake. Price Experts will be entitled to stake further sector specific RP that corresponds to the sector of an enquiry (up to the RP Staking Limit).
The Base LITH Staking Limit and a higher LITH Staking Limit (relative to RP Staking Limit) is designed to encourage new users participation and prevent bad actors.
- New users not disadvantaged. As mentioned above, new users are not at a disadvantage financially. Although new users will be price takers initially (given their initial low influence in the market), they are entitled to same Reward Mechanismbased on precision of their price estimates and their stakes. New users will also earn RP through participation to raise their staking limits.
- Prevent bad actors. Staking Limits also prevent bad actors from staking a significant number of RP while staking only nominal amount of LITH to maliciously skew the market clearing price output. See Integrity section for more detail.